Obama's overtime pay push seen reshaping U.S. payrolls, courts

March 13 | By Amanda Becker and Carlyn Kolker

March 13 (Reuters) - If the Obama administration follows
through on overtime pay reforms, businesses will have to realign
payroll policies for millions of salaried workers and a flurry
of lawsuits could follow asking courts to clarify the new
standards.

Legal battles over overtime pay are already common. Workers
often sue for unpaid wages, claiming they were misclassified as
managers, who generally are ineligible for overtime pay, even
though they spend most of their time handling the same tasks as
overtime-eligible hourly workers.

If, as some expect, the U.S. Labor Department reverts to a
classification test it used before 2004, it would likely make
more workers overtime-eligible, and a new round of litigation
could result as companies sort out employee reclassifications.

"It's immediately after new regulations (are in force) that
employers are particularly vulnerable to having a suit filed
because they could not act fast enough," said Littler Mendelson
lawyer Tammy McCutchen, an administrator in the Labor
Department's wage-and-hour division under President George W.
Bush.

President Barack Obama, moving to bypass Republicans in
Congress who are blocking a U.S. minimum hourly wage increase,
said on Thursday he was directing Labor Secretary Tom Perez to
revive "common-sense principles behind overtime" rules,
initiating a process that will likely take months to complete.

To carry out Obama's initiative, the Labor Department will
consider raising the salary threshold above which employers do
not have to pay overtime to their managers. It will also
consider changing a test used to determine which workers are
managerial and which are not, a White House official said.

The threshold was last raised in 2004 to $455 per week under
Bush, less than half of what it was almost 40 years ago on an
inflation-adjusted basis.

Also under Bush, the department - against unions' objections
- significantly revised the "primary duty" test it uses to
determine which employees can be classified as managers and
supervisors.

"If you're making $23,000, typically you're not high-end
management," Obama said as he signed a memo to Perez.

The president's request underlines Democrats' pro-worker
campaign messages going into the November midterm elections,
which Obama's party is struggling to hold onto control of the
U.S. Senate.

Business groups have already indicated they oppose the
changes, which they say will lead to job losses and confusion
for employers.

"Employers who carefully considered the proper
classification of their workforce 10 years ago would have to go
through that process all over again, and would again be faced
with uncertainty, administrative burdens and costs that are
contrary to the goal of job creation," said David French, of the
National Retail Federation, which represents department stores,
grocers, chain restaurants and Internet retailers.

PRIMARY DUTY TEST

The president's memo was thin on detail. In coming months,
the department will invite public input on proposed changes
before issuing a final rule.

The department's "primary duty" test now classifies workers
based on the "principal, main, major or most important duty that
the employee performs." Employees who spend more than half of
their time on a specific duty, such as managing other workers,
will generally satisfy the primary-duty requirement.

But department guidance makes clear that there is no
hard-and-fast way to determine a primary duty. Even an employee
who spends less than half their time managing others may be
classified as a manager if other factors support that
designation.

"The duties test is where a lot of the litigation is," in
wage-and-hour cases, said John Meyers, a partner at Barnes &
Thornburg who defends companies in employment litigation.

Advocates for workers said the "primary duty" test was
changed so significantly in 2004 that it no longer has much
meaning.

TEST OF TIME

Before 2004, the main criteria used to determine a worker's
primary duty was the amount of time they spent on a duty.

The revisions said a primary duty would no longer be based
solely on time spent, but also on other, subjective factors.

Ross Eisenbrey, vice president at the liberal-leaning
Economic Policy Institute in Washington, called the current test
an "abomination."

"Being a lead dishwasher is enough to make that person an
exempt executive even though they spend essentially all of their
time washing dishes," Eisenbrey said. "Under the law as it
stands now, it's pretty much left to the employer to say."

With his colleague Jared Bernstein, a former economic
adviser to Vice President Joe Biden, Eisenbrey last year urged
the White House to consider raising the salary threshold that
puts overtime pay beyond the reach of some so-called managers.

Some states have diverged from the department's post-Bush
administration method for determining a worker's primary duty,
at least in state-level worker misclassification lawsuits.

California, for example, uses a strict time test. Any worker
who spends more than 51 percent of their time doing
non-managerial work can get overtime pay under state law.

McCutchen, the lawyer, said there are indications that the
Obama administration favors a California-like approach. She said
it would take at least a year to complete any new regulations.